5 If the price of tennis balls goes up what impact will this

5. If the price of tennis balls goes up, what impact will this price increase have on the quantity demanded of tennis rackets? What sign (+ or-) will the cross-price elasticit have? -What sign will the cross-price elasticity of tennis balls with golf balls have?

Solution

first we need to understand that tennis balls and tennis rackets are complementary goods, i.e. they are used in a combination and the effect on one\'s price does have an effect on the demand of the other good. so if good A and good B are complementary goods and price of good A increases so the demand of B decreases

in this case tennis balls are good A and tennis rackets are good B, so as the price of balls increases it effects the demand of tennis balls as well as the demand of rackets demand of both goods decreases as they are used in a combination.

cross elasticity of complementary goods is negative as the relation between price and demand is negative therefore as the price of balls increases demand decreases, cross elasticity is negative.

if istead of rackets golf balls are considered that means it is the case of substitutes.

golf balls and tennis balls are substitutes so increase in price in tennis balls leads to increase in demand for golf balls, so cross elasticity of positive.